Striking the right balance between maintaining access to credit for small businesses and a robust complaints framework is essential for the broader economy according to a recent Mortgage and Finance Association of Australia (MFAA) submission.
In its submission to Australian Financial Complaints Authority (AFCA) draft Approach to Appropriate Lending to Small Business, the MFAA made six recommendations and cautioned that the approach must reflect intended policy settings and recognise that commercial lending does not fall under the responsible lending requirements in the same way that consumer credit products such as residential mortgages do.
“Small businesses should have access to credit, and they should also have an avenue for external dispute resolution. However, considering the fact commercial lending takes a variety of forms, it is important that there isn’t a ‘one size fits all’ approach,” said MFAA CEO Anja Pannek.
Among the six recommendations in the submission was that the Approach should include the circumstances of how, and when, a broker would be joined to a complaint and the importance of voluntary membership of AFCA.
“The Association leads from the front around self-regulation and as such as part of our rules, we require all our broker and lender members to hold membership of AFCA. In saying this, it is also important to recognise that not all small business lenders are AFCA members,” said MFAA CEO Anja Pannek.
“Therefore, in a situation where a broker is an AFCA member, but the lender is not, it is not appropriate for the complaint to proceed simply because the only avenue for AFCA to facilitate the complaint is against the broker.”
Other recommendations by the MFAA were that the broader economic environment at the time of lending be considered, and that when a complainant has been found to have withheld information from the loan assessment that no compensation be awarded.
“We consider that to award compensation in circumstances like this could unintentionally incentivise dishonest behaviour,” said Ms Pannek.
A significant portion of MFAA members, who are also small businesses themselves, support small businesses to access to credit to enable their businesses to grow and thrive, Ms Pannek stated.
“Finance brokers are already heavily involved in commercial lending with Productivity Commission research indicating that at least 40% of commercial loans are written by brokers. In addition, our Industry Intelligence Service report for the six-month period ending 30 September 2022 shows that three in ten mortgage brokers are also writing commercial loans, with more diversifying each year. We also represent broker members who operate solely in the commercial lending sector,” said Ms Pannek.
“This is why it was important for us to represent the industry on this issue, in particular highlighting the differences between residential mortgages and commercial loans.”
The MFAA’s Equipment and Commercial Finance (E&CF) Forum was integral to formation of the submission with Ms Pannek stating that their expertise and insights brought a new dimension to the discussion.
The E&CF Forum, consisting of broker, lender and aggregator members, provides insights and advice to the MFAA on a number of relevant issues affecting the commercial lending sector.
The submission is available on the MFAA website.
Reference: This article was written by the Mortgage and Finance Association of Australia (MFAA)
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